BPA caught in a crunch - Canada's BC Hydro benefits

By Lynda V. Mapes
Seattle Times staff reporter


Seattle, WA - Aluminum, the saying goes, is energy in solid form.

And bountiful, cheap hydroelectric power produced by the federal Bonneville Power Administration has made the Pacific Northwest the mother lode of the nation's aluminum output for 60 years. Washington state is home to 10 aluminum plants that manufacture 30 percent of the country's total.

Aluminum plants aren't alone in banking on their ability to buy electricity at cost. BPA power has been a boost to the region since the 1930s, benefiting industry and residential users alike.

But as an energy-supply crisis grips the Western power grid, the Northwest's sweet deal with Bonneville is souring: Last week, the BPA announced an expected 60 percent rate increase beginning in October and averaged over five years.

Even then, power from the federal hydro system would be among the cheapest in the country, projected to cost about half the average rate per megawatt hour on the open market, according to Ed Mosey, chief BPA spokesman.

That's small comfort to users who have grown used to long-term contracts that set rates at a fraction of other power suppliers.

Bonneville provides 45 percent of the region's power and is the wholesale provider of electricity for public utilities large and small across the state.

Seattle City Light and Tacoma Power buy only a portion of their power from Bonneville, but they intend to pass all of the BPA increase onto their customers.

For the Snohomish County Public Utilities District, the BPA's largest public power customer with 260,000 homes and businesses, the increase translates into a 50 percent rate boost in the first few years of the five-year contract, when the highest increases could be charged, said Al Aldrich, PUD government-affairs director. That's on top of a 35 percent rate increase already enacted this month.

But no one would be harder hit than power-hungry aluminum companies. Aluminum manufacturing is a $4.4 billion industry in Washington, paying average annual salaries with benefits, of $58,710 an employee.

Some companies already have closed plants or laid off workers because of escalating energy prices.

Others have begun generating their own power, or paid their workers to stay home as they resold cheap Bonneville power on the spot market because it has become more lucrative than smelting aluminum.

Such innovations stretch only so far; doubling rates in October would force more plant closures, industry officials say.

"That would be an absolutely impossible situation," said Susan Ashe of Kaiser Aluminum in Spokane. "We absolutely could not sustain that."

Bonneville, which operates under constraints imposed by Congress and nature, has few options but to raise rates.

Under legislation that created the power authority in 1937, the BPA must serve public utilities first. Many of those utilities went shopping for cheap power on the spot market in 1995 when new competitive pricing made it a good deal. At the time, Bonneville was charging about $28 per kilowatt-hour; wholesale rates on the open market were as low as $18.

But with rates on the open market now topping $500 a megawatt hour, public utilities want back on Bonneville's grid. Under the so-called public-preference congressional mandate, the BPA has to take them.

That means Bonneville, already short on power, will suddenly have to come up with one third more in generation come October.

Meanwhile, the U.S. Endangered Species Act compels the BPA to spill enough water downriver in spring to help protected Columbia River fish runs make their migration. The annual spill translates into enough lost power to run the city of Seattle.

Nature compounds the problem. The dry winter has left reservoir levels so low that Bonneville power planners are praying for rain like dustbowl farmers. The BPA already has spent $250 million, a quarter of its cash reserves, to buy power it lacks the water to generate so that it can fulfill its supply contracts.

The topography of the Columbia River basin also limits storage capacity within the hydropower system on the U.S. side of the border.

To appreciate how important that difference is, look north to Canada, where BC Hydro, the region's other hydropower giant, has prospered from the energy crisis.

Vast geography, storage

BC Hydro, a publicly owned utility, has storage dams across the province, in a range of climates and terrain and on two giant river systems, the Peace and the Columbia. That gives BC Hydro much more flexibility than Bonneville to store and release water strategically.

The steep terrain of the Northern Rockies blesses BC Hydro with the largest man-made lake in Canada, Lake Williston, dammed on the Peace River. BC Hydro can hoard more water in that one reservoir than is contained in nearly the entire Columbia River hydropower system.

Last summer and fall, all that storage capacity became a precious commodity.

BC Hydro's marketing arm, Powerex, skillfully worked the peak power markets as the American West, especially California, screamed for power.

Powerex released water to generate power for sale during peak hours and hoarded it during lulls. The result was a projected $1 billion (Canadian) profit for this fiscal year, up from $416 million the year before.

While Washington utilities have been piling on double-digit rate increases, , BC was mulling an energy rebate for its residential ratepayers.

The rebate has since been delayed, in part because of concern over $300 million (Canadian) still owed Powerex by California utilities too cash-strapped to pay for purchased power.

Policy-makers in Washington state are weighing a range of options to blunt the BPA's projected rate increase.

Gov. Gary Locke is pushing the Federal Energy Regulatory Commission to put a hard "cap" on wholesale power rates, at least temporarily, to bring spot market prices under control.

That, in turn, would ease the squeeze on Bonneville, which has been spending as much as $50 million a week to buy power on the spot market.

Tax breaks for new plants

Republican legislators are pushing a tax break for construction of new generation facilities, to bring more energy on line.

Other options include increasing the efficiency of turbines on the hydro system to wring more kilowatts out of the Columbia.

A quick fix - but one officials are reluctant to employ - is to close the taps on the spring salmon spill, which flushes fingerlings to sea in a burst of water sent over the dams.

The spill has been required since 1995 under the Endangered Species Act, but can be moderated in a power shortage.

Reservoirs already are being drawn down to meet winter power needs, using water that normally would be stored for the spring fish spill. Locke hopes to resist measures that would jeopardize fish runs even more.

"We want to try everything else," said Dana Middleton, spokeswoman for the governor. "We have yet to get all we can from conservation and efficiency."

But Locke is equally sensitive to the need to protect Bonneville's financial stability, said David Danner, the state's top energy adviser.

Members of Congress from California would like a share of the BPA's power. And there's been a push on for years to privatize the agency.

Bonneville has to make enough money to cover its annual debt payment to the U.S. Treasury. Otherwise, the region's argument that BPA ratepayers are paying down the country's investment - rather than benefiting unfairly from cheap power - will be in tatters, leaving the Northwest at the mercy of more volatile market forces.

"We have to protect BPA," Danner said. "It's key to our economy."

No quick fixes in sight

There are few quick or easy salves to Bonneville's woes.

It will be at least two years before substantial amounts of power will come on line from new generation plants already in the siting, permit or construction phase.

In the short term, the only things that will really help are stringent energy conservation efforts, a good hard rain and lots of snow in the mountains.

Snowpack in the Columbia River Basin, including the Canadian side of the border, is at 48 percent of average. And while it's still early in winter - a couple of big storms could set things right - Columbia River water managers are worried.

The U.S. Bureau of Reclamation, which operates Grand Coulee Dam, has been draftingLake Roosevelt one foot a day since December just to push enough water downriver to keep up with power demand on the BPA grid.

Normally that water would be stored to help flush baby salmon to sea in the spring. Now Grand Coulee managers are wondering how they will replace it.

"That's water we're going to need," said bureau spokesman Craig Sprankle. "And right now, we don't know where it's going to come from."

Lynda V. Mapes covers energy and environmental issues for The Seattle Times. She can be reached at 206-464-2736, or at lmapes@seattletimes.com.


The Bonneville Power Adminstration
Founded: 1937

Number of dams: 29 in the Columbia and Snake river basins.

What it does: Owns and operates 15,000 miles of power lines, one of the largest high-voltage electrical transmission systems in the world, and sells power produced by the dams to Northwest utilities and a few large industries. Utilities resell the power to homes, businesses and other consumers.

Nearly 3 million people and more than 1.2 million jobs depend on BPA power.

The BPA also runs a fish and wildlife program intended to repair damage to the ecosystem done by hydropower system.

Financing: The BPA pays its way by selling power, transmission and related services. It receives no tax revenues or appropriations. It pays more than $700 million a year to the U.S. Treasury to repay taxpayers' investment in construction of the dams and transmission system.

Service territory: The states of Oregon, Washington, Idaho and small portions of western Montana, California, Nevada, Utah and Wyoming. The BPA also sells surplus power to California and the Southwest.

Number of employees: 3,200

Headquarters: Portland.

Source: The Bonneville Power Administration


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